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Mogul Minute 09/02/2016

September 2 | 2016

Mogul Minute

Here at RealtyMogul.com, we keep our finger on the pulse of all things real estate, from finance to technology and everything in between. We make a point of sharing interesting articles and think pieces among RealtyMogul.com staff to help our team stay abreast of the market, and ahead of the curve.

So we thought, why not share some of these insights with you, our partners?

Got A Minute? Here’s some recommended reading with key points from the content:

On the heels of Fed Chair Janet Yellen’s statement from last week, bank shares are up and interest rates are expected to increase. Yellen commented that she “believe(s) the case for an increase in the federal funds rate has strengthened in recent months.” While the timing is still uncertain, the yield on the 10-year Treasury rose 6 basis points up to 1.64%.

On the CRE lending front, commercial mortgages grew at an annualized ~15% growth rate after a string of declines in the recent weeks. After posting negative figures in the last three weeks, multifamily lending grew at a 30% annual rate over the week.

Overall, commercial mortgage lending has been strong this year as annualized year-to-date growth rate is 10.1%.

On a related note, here is a very good piece on the potential impact of rising interest rates in CRE. In particular, the author summarizes a recent CBRE paper, “Identifying Market Risk for Cap Rate Increase under Fed Tightening”:

The Bureau of Economic Analysis recently released its second estimate and has revised second quarter GDP growth from 1.2% down to 1.1%. While consumer spending remains strong, the report notes that the primary drivers for the sluggish growth figures continue to be a lack of business investment, downturns in local and state government spending, and decreases in imports and residential fixed investment.

The National Association of Realtors put outs its latest commercial real estate forecast today and they are forecasting slow growth in CRE as economic growth remains sluggish. “Ongoing overseas weakness and the slowdown in business investment despite historically low interest rates held second-quarter growth at a tepid and disappointing pace. Only steady job creation, solid consumer spending and residential construction—albeit not enough of it—kept the economy afloat during the first half of the year.” – Lawrence Yun, NAR’s chief economist.

They are forecasting a decline in the vacancy rate for each of the four major property types except for multifamily. “NAR is forecasting a 150-basis point decline in office vacancies over the next 12 months to 10.4%, while industrial vacancy is expected to decline by 70 bps to 8.7% and retail by 100 bps to 10.5%. Conversely, apartment vacancies will see a little movement in the opposite direction, rising 20 bps to 6.1% as new construction is delivered.”

While vacancies continue to tighten, they believe pricing has already reached its peak and we are looking at falling prices in the near future as they expect a “a decline of between 3% and 5% in Green Street Advisors’ Commercial Property Price Index over the next 12 months.”

Another Chicago suburb distribution center going up for Amazon, this one in Monee, IL, a southwest Chicago suburb. The new project is expected to have 850,000 square feet and is set for completion in 2017.

This is their third distribution center that Amazon plans to open up in the immediate area as they also plan to have facilities in nearby Joliet and Romeoville.

Written by Tim Ednoff, Associate - Commercial Equity at RealtyMogul.com

Tim evaluates investment opportunities as well as performs due diligence and writes content for various equity and debt transactions. Outside of the office, Tim is an avid sneaker collector, a passionate health and fitness advocate, and a dedicated podcast enthusiast.